Part I

As mentioned above, FSI is interested in acquiring either Lemonaid or Limeaid for $$10,000.$

Below is the relevant information for the transaction.

Lemonaid $=S$ Corp

Limeaid $=$ C Corp

Stock purchase price

$$10,000\mathrm{.}00$

Net tax basis in assets

$500\mathrm{.}00$

Historical cost of assets

$2,000\mathrm{.}00$

Accumulated depreciation

$1,500\mathrm{.}00$

Shareholders' tax basis in target's stock

$500\mathrm{.}00$

Liabilities of target

$0\mathrm{.}00$

$t_c=$

$21\%$

$t_0=$

$40\%$

$t_{cg}=$

$20\%$

$r=$

$7\%$

$n=$

$10$

a$)$ What is the maximum price that an acquirer will pay to acquire Limeaid in a taxable asset

sale given that it will pay $$10,000$ in a taxable stock acquisition?

b$)$ What is the maximum price that an acquirer will pay to acquire Lemonaid in a taxable stock

sale followed by an IRC Sec. $338(h)(10)$ election given it will pay $$10,000$ in a taxable stock

acquisition without the election?

c$)$ What is the minimum price that Limeaid's shareholders will accept under part $($a$)$ above?

d$)$ What is the minimum price that Lemonaid's shareholders will accept under part $($b$)$ above?

e$)$ Given your answer in part $($a$)$ and part $($c$),$ should a taxable asset sale structure be employes

in the sale of Limeaid? Why or why not?

f$)$ Given your answers to part $($b$)$ and $($d$),$ should the IRC Sec. $338(h)(10)$ election be made in

the sale of Lemonaid? Why or why not?

g$)$ How much more cash after tax can shareholders of Lemonaid get relative to shareholders of

Limeaid, assuming FSI pays the maximum price that it will pay in an IRC Sec. $338(h)(10)$

transaction? Please note that Limeaid is sold in a taxable stock sale at $$10,000$ and that

Lemonaid is sold for the price you computed in part $($b$).$

Attached image has my calculations to it$.$ Please answer the questions by using the table